The CFPB's Advisory Opinion Process Should Be More Inclusive

There is a tremendous benefit to meeting industry leaders to work toward a shared goal of simplifying rules and protecting consumers.

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In recent years, the Consumer Financial Protection Bureau (CFPB) has implemented rules, guidance and advisory opinions on a non-partisan basis. One such example started in 2017 when then-CFPB Director Richard Cordray exempted employer-sponsored Earned Wage Access (EWA) Programs from his 2017 small-dollar credit rule, stating that the rule "excludes from coverage some new 'fintech' innovations, such as certain no-cost advances and programs to advance earned wages."

In 2020, then-CFPB Director Kathy Kraninger built on Cordray's foundation when she issued an advisory opinion (AO) explaining that qualifying EWA programs should not be viewed as credit. In the opinion, the CFPB says, "[l]ike the accrued cash value of a consumer's insurance policy or pension account, the accrued cash value of an employee's earned but unpaid wages is the employee's own money." Moreover, earlier this year in President Biden's budget, the current Democratic administration made it clear that "on-demand pay arrangements are not loans."

It is not an understatement to say that, together, the former Directors created a highly influential framework for the development and expansion of EWA programs which are estimated to be utilized by more than 55 million Americans. These products have helped people in financial stress access money they have earned, but not yet received, during one of the most challenging health and economic times in our country's history.

This example shows how Americans benefit when regulations, advisory opinions or guidance released by a particular agency remain consistent, even through a change of agency leadership or administration.

In a blog post last month, CFPB Director Rohit Chopra said that markets work best when the rules are easy to understand and enforce. In his effort to make regulations simpler and clearer, Director Chopra pledged to dramatically increas[e] the amount of guidance [the CFPB] is providing to the marketplace. We can all agree that the best way to protect consumers and help the industry provide innovative, useful products is to establish clear, easy-to-implement rules that last across administrations and changes in CFPB leadership.

However, when Director Chopra wrote in his blog post that the "CFPB aspires to more clearly communicate the agency's expectations," he is signaling a move to greater reliance on guidance. This shift, and the use of words like "aspire to" and "expectations," are the opposite of clarity and simplicity and can lead to potential uncertainty.

While I would encourage all regulators to conduct reviews to make sure their regulations, guidance and advisory opinions are up-to-date, such reviews should be conducted in a thoughtful and transparent manner. If the Director moves down the path of onlyregulating via guidance without any kind of public scrutiny, he could significantly undermine his stated goal of trying to make sure the rules are simple and clearly understood.

Since its inception, the CFPB has been viewed as a political entity by both sides of the aisle. The financial services industry, however, does not have this luxury. Even when the industry disagrees with a policy or regulation, they are still required to comply with all relevant regulations issued by the CFPB, and other prudential banking regulators (FDIC, OCC, etc.).

While the CFPB's final Advisory Opinion Policy contains a section labeled "Rescission of Advisory Opinions," it does not lay out a process where a policy that has been implemented and relied upon can be withdrawn.

Consistent application of the rules of the road helps the industry plan for future market actions, and it helps consumers by letting them know the products they rely on will not suddenly disappear. Don't just take my word for it, consistency and transparency are themes that have been echoed by a number of consumer groups, including the National Consumer Law Center.

I and my team agree with the CFPB's mission and the Director's goal — to protect consumers. But before taking any regulatory action to rescind, amend, or enhance the 2020 EWA Advisory Opinion, I would request that Director Chopra meet with teams like mine and other leaders in the EWA community. There is a tremendous benefit to meeting in person to discuss ways we can reach our shared goal of simplifying rules and protecting consumers with minimal market disruption.

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